Shareholders Determine Executive Compensation

It's commonly known as say-on-pay policy. In the United Kingdom and the Netherlands, say-on-pay is mandatory. Now, as Canadians desire to be viewed as doing the right thing, say-on-pay will become policy at 13 Canadian corporations beginning next year.

Say-on-pay, although sounding like the name of a children's game, is by no means a game. It is a system whereby the shareholders of a corporation get to vote on executive compensation packages. Although the policy is merely advisory, it is by no means to be taken lightly. The board of directors is not obligated to follow the express directives of the shareholders. However, the vote by the shareholders - whether to increase top executive compensation, decrease executive pay, or leave it as is – can send a clear message to the board members.

In countries that regularly implement a say-on-pay policy, top company executives invest a good deal of effort to court shareholder votes. While they certainly have a vested interest in the outcome, the important factor is the open lines of communication between shareholders and corporation management. Regular discussion between the investors and operations is extremely important. The goal behind encouraging shareholders' input is to break down the barrier that currently exists and allow management to understand how their investors view the company's performance.

In an effort to encourage widespread acceptance of the say-on-pay policy, the Canadian Coalition for Good Governance is working on a model policy for boards to implement, including the wording of the actual resolution put to shareholders. As shareholders are likely to vote based on overall feelings and ignore the specifics, the Coalition hopes that the wording of their resolution will help shareholders focus their thoughts.

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It's Start-Up Time

The recession is in bloom. People fear for their jobs. The economic future is questionable. It may be the perfect time to start your own business. Though it sounds rather absurd, this may be the ideal time to become self employed. True – self employment is not easy but, in a climate where one is never certain how long they will be guaranteed a regular salary, being your own boss may provide the best security for the present and the future.

Starting your own business carries certain risks. However, by following a basic blueprint, you will start with the right foot forward.

Before all else, prepare a business plan. Put your ideas, thoughts, research, and projections in writing. This will help you review your proposal as well as become an important document for outside investors.

The best idea can fall flat if you can't sell your product or service. Conduct your market research before you hang out your shingle. Carefully identify your potential customers and calculate whether a viable market exists. Don't be shy about seeking advice from more experienced players in the field.

Small businesses can readily get bogged down in government bureaucracy. It is wise to consult with experts who have dealt previously with the red tape.

Prepare a realistic cash flow projection. In the early stages of your business, check your financial statements daily. Consult with seasoned financial professionals to ensure that your projections are on the mark. You should be projecting the first two years in advance.

It may be difficult to raise the initial seed capital for your business. Most likely, friends and relatives will be the best address, as will former entrepreneurs who can appreciate where you are. The banks will likely wait until you are up and running.

Finally, we live in a world dominated by the internet. However, keep in mind that it is merely a technical tool. The success of your business depends on your personal effort and input.

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Are You Prepared for Retirement?

If you are a small business owner, the answer to this question may be a resounding "no." In studies conducted recently by the Royal Bank of Canada (RBC), the RBC surveyed small business owners across Canada. Almost a quarter of small business owners expressed a desire to retire within the next five years. However, only a small number are properly prepared or have any idea what the impact will be.

One of the primary stumbling points for retirement planning by small business owners is the question of succession planning. In the business world, transfer of the company to the next generation within one's family is most common. Only a third of small businesses survived succession to the next generation and only one third of these businesses were then passed on successfully to the grandchildren.

It is not always a question of poor planning. It may be that one's children are not qualified to take over the helm of the family business. Or, on the other hand, they may simply not be interested.
Sometimes, the founder is the business. Remove that dominant figure and the business ceases to exist. If one built a business and failed to make financial plans for leaving the business, he could face serious financial problems should the business cease to function.

The RBC study revealed that 62 per cent of small business owners in Canada were age 50 or older. This translates into a large number of future retirees in the next decade that must start planning for the golden years as soon as possible, if the transition from business owner to retiree is to be smooth and well provided for.

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Alberta Faces Record Deficit

With natural gas prices continuing to fall, Alberta's energy boom has come to an end. The immediate result is a growing deficit that has no immediate relief in sight. The latest forecast, revised from earlier predictions this year, indicate a record $7 billion deficit by year's end. Some economists believe that continuing weak gas prices will send the deficit above the $8 billion mark. This dour prediction is based on the assumption that the province is being overly optimistic about tax revenues. It is widely believed among economists that corporate taxes will fall well below figures recently published by the province's Progressive Conservative government.

Alberta's Finance Minister Iris Evans has issued orders to provincial offices to trim $430 million from provincial programs. The government itself is seeking to trim $2 billion from next year's budget.

The province's premier Ed Stelmach warned that the deficit is likely to remain in place for at least two years following the recession. However, he also announced that the deficit will be offset by $17 billion in emergency savings in the provincial Sustainability Fund. This amount will likely deplete the fund. However, it will enable the Premier to not implement any tax increases nor will the province have to cut jobs. The weakened economy has already contributed to a predicted jobless rate of 22,000 this year. Adding to the gloomy outlook is a forecast of negative 2.5 percent growth for the current year.

Despite a sorry economic forecast, the province is pleased to note that its population is continuing to grow. Economic hardships in other regions of the nation have caused a migration to Alberta. The premier announced that his province's population is expected to grow by 50,000 residents this year.

On the positive side, the provincial Heritage Savings Trust Fund suffered a $3 billion beating when the stock markets plunged. Recently, though, the Fund has shown a $1 billion recovery, allowing the province to transfer $730 million from the Fund's profits to the province's general revenues.

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Bank Of Canada: Strong Canadian Dollar may Reduce Economic Growth

With predictions abound of economic recovery in the third quarter of this year, the Bank of Canada has issued a warning – not its first – that the strong Canadian dollar may pose a serious threat to the nation's financial comeback.

The Deputy Governor of the Bank of Canada, Timothy Lane, recently addressed economists at a meeting of the Canadian Association of Business Economists. Mr. Lane's speech did not veer much from the official viewpoint of the country's central bank. He warned that a strong Canadian dollar will reduce economic growth and will delay the return of inflation to its target. In fact, as the bank has made certain projection in regards to inflation, Mr. Lane feared that the continuing strength of Canada's currency may force a revision of those predictions.

Mr. Lane explained that the Bank of Canada has tools at its disposal to deal with the rise in the dollar's strength. However, the Bank's options are limited, with interest rates at an historic low of 0.25 percent. At this point, the most the Bank can do is issue verbal warnings to speculators to try and steer them away from the Canadian dollar. Most economists agree that Bank intervention in foreign exchange markets is highly unlikely. Another step the Bank could do, and is highly unlikely, is quantitative easing – literally, the printing of money. Mr. Lane did not give any indications, though, that the Bank is considering this unconventional step.

One of the leading factors of the currency's rise in value is attributed to higher commodity prices, in turn leading to a Canadian recovery. Similarly, the weakening of the U.S. dollar is a contributing factor.

While Mr. Lane views global financial recovery as moving forward, and Canadian recovery as one of the leaders, he remains cautious about committing to a complete recovery in the third quarter.

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Canadian Taxpayers Association: Alberta Should Cut Spending

As Alberta's deficit continues to grow, political pundits and economists have much to say about the cause and effect of the province's financial woes.

According to a recognized expert at the University of Alberta, Alberta is the highest-spending province in Canada. A major blunder has been the financing of all this spending in an irresponsible fashion. The primary funding source has been income from the province's non-renewable natural resources. Non-renewable indicates that the income will stop flowing when the resources are no longer present.

A recent statement issued by the Canadian Taxpayers Association calls upon the province to cut its spending immediately. While the province intends to finance its deficit from emergency savings funds, this will literally wipe out these funds, leaving nothing out aside for a "rainy day."

Alberta Premier Ed Stelmach has stated unequivocally that he has no intention of raising taxes, nor does he intend to cut jobs from the province's payrolls. Moreover, he has announced that the province intends to move forward with $20 billion in building projects planned for the next five years. The province's population has grown by more than one million residents in the last two decades. More schools and hospitals are needed as well as assisted living facilities for a growing elderly population.

While numerous companies in the private sector, facing financial hardships, have worked with their employees to take a rollback in wages rather than face job loss, the province's employee unions have yet to be approached officially to discuss wage concessions. Considerable savings to provincial spending could be realized by coming to agreements with the province's 21,000 employees.

The provincial leadership has been rather reticent about necessary cost-cutting measures. Experts feel that residents may not take kindly to having surprises revealed at the last minute. Recovery may take several years but few feel that it will happen without specific government intervention.

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Evaluating Canada's Inflation: More Buying Power for Small Business

Volumes have been written in the last few months about Canada's inflation rate, currently sitting at 0.25% annually, and the interest rates set by the Bank of Canada. As the 2009 recession is seemingly coming to an end, according to many government and private analysts, speculation exists as to how the interest and inflation rates will be affected.

According to the chief economist for the CIBC, Avery Shenfeld, there should not be any expected growth above non-inflationary potential until sometime in 2011. The economic slack created by the recession is quite large and is expected to persist for a couple of years. Although the Bank of Canada is rather optimistic in its projections, Shenfeld feels that inflation will still feel the downward pressure of a sizable output gap well into next year.

Shenfeld explained that the core inflation rate did not decelerate this year as much as the Bank of Canada predicted. The reason for this deceleration slowdown is due, in part, to a process that economists call the income effect. Essentially, the Bank of Canada has excluded most of the volatile items that have been deflating from the Consumer Price Index (CPI).

Putting aside economic evaluation, the real question is what this means for the average consumer. In real terms, a negative year-on-year inflation rate means an increase in buying power of the average wage. With lower gas prices at the pump, and new, lower mortgage bills, average Canadians will have more money in their pockets when they go shopping. Also important is the strength of the Canadian dollar. The strong dollar is having a dampening impact on retail prices of imported goods.

Mr. Shenfeld's report does not see the projected US recovery as having much benefit for Canada. The US stimulus programs, while spurring economic growth in that nation, contain trade barriers with Canadian manufacturers that historically have benefited from trade with the US. Thus, US recovery may actually dampen some of Canada's economic advancement.

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The Price of Ending the Recession

Government officials and economic analysts are in common agreement that Canada is headed out of the recession. While there are disagreements as to the exact timeframe, there is a fact that is common to all parties – the price tag.

For a country that proudly presented a balanced budget for twelve consecutive years, Canada had to revise its budget projections for the thirteenth year and for several years to come. Canadian Finance Minister Jim Flaherty recently announced his department's projection of a $50.2 billion deficit for the current fiscal year. He was quick to add, though, that this figure is "consistent" with meeting the deficit target. The government projects that it will present deficit budgets for the next four years, adding nearly $100 billion to the national debt. The current deficit is due primarily to several factors: falling tax revenues, both personal and corporate; a massive 47% increase in unemployment insurance premium payouts; and huge bailouts to the auto industry as well as other business subsidies.

While Mr. Flaherty is holding to his optimistic prediction of returning to a balanced budget in 2013-14, Prime Minister Stephen Harper, and several leading economists are somewhat more realistic in their forecasts. However, both the Prime Minister and the Finance Minister are in agreement that tax increases and major spending cuts are not being considered in order to expedite a balanced budget.

Some analysts have suggested that drastic changes to the budget are not advisable. Rather, once the stimulus programs spending has been depleted, the government should adopt a program to control spending growth. This will enable the government to eliminate the deficit over a period of several years.

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Leaving Your Purchases at the Checkout

Let's be honest; most of us have done it. Embarrassing as it might be, most people have removed an item from their shopping cart while waiting in line at the checkout. It used to be merely changing your mind, or realizing you took the wrong item off the shelf. Today, it is a totally different phenomenon. In today's rocky recession climate, people are tightening their belts. Some are doing it out of necessity while others are adopting a more cautious attitude. Whatever the reason, more people these days are careful of what they purchase. They come to the store with a list of needs, not wants, accompanied by a specific budget. If the tally should move above their available funds, something comes out of the cart.

As yet, there are no hard statistics for this latest trend. However, more and more stores are reporting a growing number of un-purchased items at the cash register, either removed by shoppers as they wait in line or removed by the cashier at the shopper's request upon seeing their balance.

Shoppers have also begun arranging their purchases. Health care and other basic necessities are the first to go through. If there is enough money in the wallet, the frivolous items go through last.

It's not just a question of cash. Credit card purchases have also been affected. Credit card companies used to allow customers to exceed their credit limits by up to 10 percent. No longer! Purchases that exceed the credit limit even slightly are being denied. Consumers wishing to avoid that embarrassment simply remove some items to keep their balance lower.

Internet shopping has become victim to the same trend. Research estimates indicate that as much as 59 percent of online purchases are being dumped before checkout. Much of this is attributed to the costs that are tacked on as one proceeds through various steps, including taxes, handling fees, and shipping charges. Some internet companies are reducing the number of steps in a purchase, as well as posting the costs up front, in order to retain customers.

Hopefully, the days of changing one's mind will soon return.

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Strengthening Your Business Using Advisory Boards

A small business or start-up that is approaching a major change – expanding into a new market; launching a new product line; breaking into a foreign market – may decide that it needs help or coaching before taking on this business challenge. For many such companies, the best tool is the establishment of an advisory board. While there are no set rules about setting up such a body, it generally is comprised of seasoned, experienced professionals from outside the business. A well-balanced, effective board can become an indispensable tool to help strengthen a business professionally and help it advance its goals.

As the purpose of the board is to be advisory, not operational, its members should be appropriate to the task at hand. If your goal is expansion of the business, the board members should be able to provide you with business leads and contacts. A business seeking to strengthen its executive team should recruit board members who can serve as mentors to the top staff and provide business skills. When financial contacts are your need, recruit business people from the financial world.

Of course, only you can evaluate the effectiveness of an advisory board. You must establish clear objectives and delineate the benchmarks that the board should reach. Also, be prepared to compensate board members fairly. These are professional people whose time has value to it. It is well advised that you seek the majority of your advisors from within your own personal contacts. After all, this is your company and complete strangers may be professionally appropriate but can you work with them?

Finally, don't get carried away with establishing a board with many members. Keep the number manageable so that the board will become a workable group. Quality, not quantity, is what counts.

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